In a recent post, I wrote about the importance of including competitive benchmarks in retailer category assessments. In this post, I’ll build on this concept by showing you how to construct an Opportunity Gap Analysis.
This analysis examines whether the retailer is getting its fair share of category sales, compared to competitors. And, more importantly, it puts a dollar value on closing any gap.
It’s a simple but powerful approach. You compare a retailer’s market share across all categories (their share of trading area ACV) to that retailer’s market share for your particular category.
For example, let’s say Retailer A’s share of trading area ACV is 25%. All things being equal, the retailer should capture 25% of the dollars for any category. This is the retailer’s “fair share”. Of course, retailers won’t sell their fair share of every category – there are areas of strength and weakness for any retailer. But if the retailer isn’t attaining their fair share, then there’s a quantifiable opportunity that’s worth exploring.
To further illustrate, let’s plug in some numbers.
In this example, Retailer A has ACV of $1 billion and Trading Area ACV is $4 billion. Retailer A share of ACV = 25%
Before we dive further into the example, a couple of notes on pulling this data from Nielsen/IRI:
- IRI gives you data for the total trading area which they call the CRMA. However, Nielsen gives you the competitors’ ACV. They call it ROM (Rest of Market). So to get the total trading area ACV from Nielsen, you need to add the retailer ACV and the ROM ACV.
- Nielsen/IRI express ACV in millions of dollars. Given that, the number that appears in the database for Retailer A would be $1000, not $1,000,000,000.
- Retailer ACV is a measure available in some, but not all, Nielsen and IRI databases. And it is not provided when you buy an ad hoc Excel report unless you explicitly request it. If you are missing this measure, do not despair! Here’s a post showing you how to estimate retailer ACV.
To see if the retailer is selling its fair share of your category, you’ll need category dollars for the retailer and the trading area. Let’s say that retailer category dollars are $20 million and trading area category dollars are $100 million. Usually you would use annual numbers for this type of analysis and demonstrate an annual opportunity.
Retailer share of trading area category sales: 20 / 100 = 20%
So here you’ve identified an opportunity gap versus fair share:
25% ACV share – 20% category share = 5 point gap
To make your case even more compelling, you can calculate the value of increasing category sales to reach fair share. The value of one share point in a Trading Area is always category dollar sales divided by 100. Then multiply that by the size of the opportunity gap. So in this example:
Value of one share point: $100 million / 100 = $1 million
Value of closing opportunity gap: $1 million x 5 point gap = $5 million
You’ve just identified a way for Retailer A to gain $5 million in retail sales! This is a great place to start your presentation. I expect management will listen closely when you suggest category adjustments to close that opportunity gap.
Need help getting started with your category assessments? Contact us to discuss how our consulting services can help you with this or any other Nielsen/IRI challenges you’re facing.
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